Suzhou MedicalSystem Technology Co., Ltd. (SHSE:603990) Held Back By Insufficient Growth Even After Shares Climb 29%

Suzhou MedicalSystem Technology Co., Ltd. (SHSE:603990) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

Although its price has surged higher, Suzhou MedicalSystem Technology's price-to-sales (or "P/S") ratio of 4.4x might still make it look like a buy right now compared to the Healthcare Services industry in China, where around half of the companies have P/S ratios above 5.8x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Suzhou MedicalSystem Technology

What Does Suzhou MedicalSystem Technology's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Suzhou MedicalSystem Technology has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Suzhou MedicalSystem Technology will help you shine a light on its historical performance.

How Is Suzhou MedicalSystem Technology's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Suzhou MedicalSystem Technology's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 128% last year. The strong recent performance means it was also able to grow revenue by 95% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 160% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Suzhou MedicalSystem Technology's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What Does Suzhou MedicalSystem Technology's P/S Mean For Investors?

Suzhou MedicalSystem Technology's stock price has surged recently, but its but its P/S still remains modest. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Suzhou MedicalSystem Technology revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Suzhou MedicalSystem Technology (1 is a bit unpleasant!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Suzhou MedicalSystem Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.